General aspects of the technological approach to international trade
Innovation and Trade Shumpeter: the entrepreneur-innovator has a key role in the introduction of new goods and technology in the economy Two types of innovation a) product innovation: it implies absolute adavantages b) process innovation: it implies comparative advantages Waves of distructive creation cause economic development Innovation shifts production functions: it creates temporary monopolies (patents ecc.)
a) analysis focuses on ABSOLUTE ADVANTAGES b) Production functions are unstable and technology cannot be easily transfered: - Factors endowment continuosly changes because of: 1. human capital growth 2. learning curves 3. production and import of machinery (capital goods)
c) Technological progress is a dynamic phenomenon and is closely linked to imitation and structural break processes d) Technological progress is not compatible with perfect competition e) Market demand interacts with market supply: - When income increases, market dimension widens and growing opportunities for introducing new products and technologies arise (Linder) f) Factors mobility (transfer of technology) becomes very important g) Market competition depends not only on production costs but also on quality and product differentiation h) Politics may affect the technology gap
Determinants of innovation Three competing approaches a. Demand pull b. Technology push c. Scarcity of factors of production
Demand pull Technological progress depends on society s needs represented by consumers demand technological trajectories depends on demand (e.g. government and military expenditure) expected profits determine, among new avalaible technologies, the one that is actually applied to production if domestic demand for a good is low, then that industry will show a low degree of innovation propensity
Critiques to the Demand Pull approach Consumers demand is not always well defined and identified there may confusion between tra demand and needs Technical progress is ruled by an internal logic rather than by external elements
Technology Push Technological progress is exogenous with respect to market demand and is a) not continuos b) cumulative c) cyclical d) inter-related
Technology Push In history we observe several economic and technological pursuits and overtakings imitator may have advantages over innovator since they may learn from innovator s mistakes early innovators may be constraint by an obsolete capital stock (e.g England after the Industrial Revolution)
Factor scarcity Factor scarcity may induce innovation in order to overcome it if labour is expensive (scarce) firms may introduce labour saving innovation in production CRITIQUE: very often it is abundance of resources, rather than their scarcity, that fosters innovation
A synthesis introduction of new products or productive processes requires complementary innovations There is a variable lag (1-78 years) between a scientific innovation and its commercial exploitation market demand helps selecting among research projects
A synthesis Innovations appear in cluster, following long and variable cycles (long waves) Kondratieff s cycles: 1.% 1790-1825 STEAM 2. 1825-1875 RAILROADS 3. 1895-1915 CARS AND ELECTRICITY 4. 1945 -... ELECTRONICS, AIRPLANE AND SPACE INDUSTRIES, ICT
A synthesis Product and process innovations are generally interwinded Main features of innovation processes: 1. They are selective and follow specific paradigms and trajectories 2. They are cumulative (dynamic economy of scale - learning by doing) 3. Different industries offer different technological opportunities 4. Retention of benefits from technological innovation differs among sectors ( monopolistic rents )
A synthesis Market (supplier) concentration depends on 1. past accumulation of technological opportunities 2. the degree in which monopolistic rents may be exploited the role of social and political strains and the law and normative environment in which firms live